Graduates, Here's How to Avoid Debt and Get Rich
When Tom Meitner graduated from the University of Wisconsin-Milwaukee in 2008, he plunged aggressively into the working world -- but the social world too. Due to overactivity on the social side, he quickly found himself battling debt. He decided to do something about the problem.
"Actually, I wish I had put myself on a strict budget at the time just to minimize any further debt damage," says Meitner, the founder and editor of Cufflinked Magazine, a source for post-college graduate men. "If you don't tell each penny where to go, it'll disappear before you realize it. Too many people are racking up debt right out of college simply because they want to live a certain way before they are financially ready."
When Meitner got married in 2010, he and his wife got serious about their debt problems. "Together, we have paid off more that $150,000 in debt and interest since then by simply maintaining a strict budget, cutting out any extra debt and sacrificing some of the more expensive luxuries people our age indulge in, like going out, watching a lot of cable TV or taking vacations paid for with a credit card," he says. "Our motto now is, if you can't cash-flow it, you can't spend the money right now."
Other recent graduates agree, and some, like Meitner, have built a career out of better personal financial practices.
Take Erin Millard, who graduated three years ago from St. Joseph's College and is now a brand and community manager at Wherewithal, a Charlotte, North Carolina, online personal finance advice provider for younger Americans. "We tell our community to start paying back your student loans as early as you can -- don't wait for the grace period to end," she says. "If your interest rates are higher -- in the 5 percent to 8 percent range -- paying early will make a big difference in the affordability of your payments."
Student loan borrowers can also make extra payments each month to pay loans back quicker, Millard says. "Conversely, if you're having trouble meeting minimum payments, don't wait to contact your lender. Speak with them at the first sign of trouble to see what alternative repayment options are available."
The best financial plans for Americans just starting out in their post-college years have similar building blocks. One element is credit -- specifically, the abundance of easy credit available to college graduates that can turn their financial lives upside down in just a few years, if it's abused.
"Don't get sucked into the credit game," advises Jo Webber, founder of Oink, a Los Angeles digital wallet companies geared toward younger financial consumers. "I didn't, but I saw many of my friends who did. They didn't realize that after being a student, you have to manage cash carefully -- and very suddenly. In that instance, you may find yourself without a job for a while, so don't spend money until you have earned it, and even then only if you have a safety net in place."
Starting Out on the Road Ahead
Webber offers new college graduates a road map of sorts for what is likely their first real stab at financial planning. Here's what she advises young professionals to do right out of college to get a better grip on their finances:
- Get a student loan repayment plan. Many loans have grace periods to help students get on their feet before payments are due. Figure out which is best for you. As Millard says, though, the sooner you start paying the loan off, the better.
- Set a starting salary goal. Search career websites to figure out how much people earn in your industry at your experience level. Most jobs have benefits, bonuses and even hidden commissions, depending on the company.
- Plan to live off 70 percent of your income. The quicker you learn to budget your earnings, the sooner you will be able to pay off college debt and save for the future. These savings can help for a rainy day or for making more money with investments.
- Plan to invest. Staying up to date with investments can help you get out of any tough financial situation faster. Talk to your parents or a financial advisor about how to start investing. Also, put money into a company 401(k) plan as soon as possible. Studies show that the earlier you start, the faster and heftier your account will grow until retirement. And yes, you should be thinking about retirement as early as your 20s.
- Find a financial mentor. The best advice comes from someone that's already been in your shoes. Ask your parents, boss, mentor or a financial advisor what they did when they were your age to plan after college.